Why Zynga’s Stock Fell Off a Cliff

Zynga’s stock has fallen off a cliff. It's off 11.5 percent at last check, bringing the social gaming company down nearly 50 percent year to date. What happened?

It seems people are choosing more mobile instead of social games.

Cowen and Company issued a report titled “Facebook Gaming in Accelerating User Tailspin,” which highlights the fact that Zynga’s social gaming daily active users declined by 8.2 percent in May.

Cowen analyst Doug Creutz points to the fact that nearly all of the company’s major titles posted “significant” month over month declines in daily active users, and that May marked the second consecutive significant month over month drop.

Despite the launch of hit games, like ‘Bubble Safari,’ Zynga is continuing its decline in total daily active users. Creutz says it looks like casual gamers are simply moving away from the Facebook platform to games on their smartphones and tablets—the quality is high and they have the advantage of being able to play them anytime, anywhere.

But Zynga’s drop may be unwarranted—Creutz has a “Neutral” rating on Zynga shares because of Zynga’s mobile game business. He points out that Zynga’s “advantages of scale and cross-promotion” are limited to the Facebook platform, though Zynga is “aggressively pursuing mobile game development.”

In fact, just today Zynga is taking its hit “Draw Something” mobile app global, by launching it in 12 new languages, and partnering with Enrique Iglesias and Jennifer Lopez to promote the game as they start their North American Tour.

And Wedbush’s Michael Pachter tells me that it’s more important to focus on the number of gamers who are paying to play. He says it makes sense that user numbers for a game like Draw Something would drop off – people who aren’t good at drawing will simply stop playing. But the people who do stick around are likely to pay more to improve their gaming experience.

But today’s slide follows the stock dropping yesterday on what appeared to be a combination of concern aboutFacebook’s slowing growth in April and lower daily active user numbers.

The big question—can Facebook make its gaming experience on the smartphone good enough that gamers will be able to have all the advantages of the mobile gaming experience without having to leave Facebook’s platform. Once again, Facebook’s future hinges on its mobile experience and expansion.